Sunday, January 27, 2013

Debra Satz's book, Why Some Things Should Not be for Sale: The Moral Limits of Markets is a kind of book I rarely encounter. It endorses a thesis I find fundamentally nasty, i.e., "an invasion of contract by status, the subordination of market price to social justice, the replacement of the free bargain by the declaration of rights." But it was also enjoyable to read. The author presents a clear case (mostly), genuinely understands the strength of her opponent's points (usually), and holds back from drawing overly sweeping conclusions (typically).

Satz begins her book by outlining reasons why markets are good. She notes two primary virtues of markets - markets are efficient in their production and allocation of goods and services, and markets enable freedom for people in allowing them to choose what to buy and sell. She immediately follows this with the textbook accounts of market failure - imperfect information, externalities, etc. Gratifyingly, she also notes that market failure does not by itself justify government intervention: "Of course, even if markets generate inefficiencies due to externalities, the alternatives might be worse. Perhaps some market inefficiency is preferable to a lot of government regulation, with its slow, clumsy, and lumbering bureaucracy."

Her fundamental thesis actually isn't very controversial. She argues that limits on markets, or lack thereof, can't be justified in terms of economic efficiency or inefficiency. This statement, by itself, should be immediately acceptable to anyone of a libertarian bent. Libertarians, particularly of the deontological variety, are often very quick to argue that market inefficiency does not, by itself, morally justify intervention. Satz is arguing from the opposite side of the field - she contends that markets operating efficiently does not morally rule out intervention. The question, then, is a matter of what moral system should be used to make that kind of decision.

Sunday, January 13, 2013

Roger Backhouse and Bradley Bateman have co-authored a recent-ish book about Keynes entitled Capitalist Revolutionary: John Maynard Keynes to try to shed some light on the "real" Keynes. This need arises, they say, because Keynes wrote on a broad range of topics, and his more nuanced and multifaceted views have been largely overlooked. This book is, in my opinion, a pretty mixed bag. While forming my thoughts on it, I was actually reminded of Keynes' description of the works of Karl Marx, which he said contained "occasional but inconstructive and discontinuous flashes of insight." Water that sentiment down a bit, and you have my opinion of this book - some pretty good content mixed in with a lot of drudge. Some ideas in this book seem poorly formed, or maybe just poorly explained. Consider the following passage:

Following his Cambridge mentor, G. E. Moore, Keynes steadfastly refused to limit human behavior to utility maximizing. Like Moore, he believed that people were often motivated by a higher principle. Thus, when he wrote of 'egotistic capitalism' and of 'self-interested capitalists,' he did so critically: egotism and the pursuit of pure self interest were linked to the system's failing to perform as it should.

So Keynes believed people don't act like self-interested utility maximizers, but also believed capitalism fails to work as it should because people act like self-interested utility maximizers? I am puzzled.

Saturday, January 5, 2013

Now that I've shared my thoughts about Paul Krugman's book, it's time to talk about Mark Zandi and his book, Paying the Price. First, Mark Zandi is much more reasonable than Paul Krugman. Okay, I know that's damning with faint praise, because "more reasonable than Paul Krugman" is right up there with "winning a beauty contest against Steve Buscemi," so let me try again. Zandi's book is good - very good. He makes a straightforward case, makes clear where he's uncertain, and gives real acknowledgement to legitimate concerns about each of his points. In further distinction from Krugman, he never once suggests that anyone who disagrees with him is lying, delusional, ideologically blind, evil, or that they hold their views because, in Krugman's words, such a position "also rationalizes social injustice and cruelty more broadly."

While Krugman's book makes the case that we still need to go full speed ahead, Zandi is more or less declaring a job well done. He's not fully satisfied with the way everything turned out, or the way all programs were structured, but he thinks the response was basically correct. Zandi is also of the opinion that the American economy is set to spring back and ready for strong future growth.

Thursday, January 3, 2013

So I spent the past few days reading and reviewing Paul Krugman's latest book, End This Depression Now!, as part of my project of reading only the contrary side for a year. It was on my "to-read" list anyway, so I figured I'd just bump it to the top of the list.

Anyway, here is Krugman's case in a nutshell. He argues that all the typical concerns you might have about massive government deficits don't apply when the economy is in a liquidity trap. (I really wish he would take care to note that he defines liquidity trap very differently from the way Keynes defined it, but let's not ask for the moon.) Because the Fed has pushed interest rates to near-zero, it can't do any more to stimulate the economy. And because private spending and investment are below a level that sustain full employment, the federal government can borrow and spend without crowding out private spending or creating inflation. Deficits and the national debt do matter, but not right now. We can - and should - worry about those issues once the economy is humming along again. And doing that doesn't even require massive debt payments. After World War II, the debt wasn't exactly paid off - it was kept level and as the economy grew the debt to GDP ratio correspondingly shrank. Because the federal government can borrow at very low rates, an additional $5 trillion in borrowing would cost about $125 billion a year in interest payments to sustain. Once we are restored to full employment, the deficit will shrink automatically, because tax revenue will rise and less will be paid out in unemployment benefits and the like, and the national debt can be both grown away and inflated away. Some mild inflation would be beneficial, because it makes workers cheaper to hire, as well as relieving the burden of private and national debt.